Friday, December 26, 2014

What Is an Acceptable Investment Return?

There are many type of investors. Some of them are not investors, but speculators. Stock market is an interesting place, which serves the needs of many types of people.

I have seen many market participants, who does not even look at the company business before, purchasing and selling the shares of a certain company. They consider it as an abstract, and consider the stock market being a place, where they can trade the shares of companies, And that is it.

On the other hand, I have seen market participants, who only purchase shares after having studied nuts and bolts of the companies, they are becoming shareholder in. These type of investors, in some cases, do not even pay attention to the intricacies of the market.

The truth is that people should choose the best way to participate in the markets, and try to become a professional in the field they have chose to be involved in. The history shows, that what counts is not the methods market participants apply, rather how well they define the areas of expertise and make good out of it.

Therefore, the rates of return for different type of investors will be different. For me personally, I believe that it is important not to lose, and only then think about making money.

Monday, December 22, 2014

Do We Have To Care About Oil Price Decline?

Oil prices have been coming down sharply since early December. The world media outlets, have focused on this issue. Countless experts let the world know about their view on Bloomberg, CNBC and other major news outlets. But do we have to care about it? I mean, for a regular person on the street, is the fall in price of oil (technically it is the price at which the future contracts are set, and not the physical oil price) be of importance to affect his decisions or not?

This is the question, that I would like to think through on this post.

First, let's start with the basics. What good does oil have for our lives? It is the most widely used energy source. As such, it is important that we have energy and it is good if it doesn't cost much for regular people. So, by looking from this angle we can clearly see that the falling of oil price if actually not so bad. 

Second, oil is the primary export product for many developing countries, Kazakhstan included. So, selling oil for less is bad in terms of revenues the country generates. However, we have to also note, here that, there is an opportunity for exporters to lower the cost of production of oil and other ancillary costs, then theoretically oil exporters have an ability to maintain their margins, or at least lessen the effect of lower revenues.

Third, many people are employed in the oil production, sales and marketing industries. Less revenues, might mean less income for these people. So, we have a social effect of falling of oil prices. 

Fourth, the oil is used as a primary raw material for petrochemical industry (think plastics), which might actually benefit from the fall of raw material costs.This is good, as the retail prices of many products that we use daily might fall too.

In conclusion, we might say that falling of oil prices is both good and bad. There are some areas that might benefit from this, and other areas that might get hurt by this. 

In general however, the falling prices of oil is not controlled by me, you or any one person, so we should treat it as a given condition and try to use it for our benefit as much as possible. It is like a weather. Today it might be sunny outside, tomorrow it might be raining. We never know. Therefore, it is always better to focus on items that we can control and important, rather than focus on items that we don't control and not important.

Tuesday, August 12, 2014

My thoughts on an article in NY Times article

Today, I came across the article in NY Times, about the Thinknum. The article talks about the start up project, with a product that would help analysts and associates at IBs to faster do their job, and if possible more efficiently. You can familiarize yourself with the article by going to the link provided above and learn more about the here.

Here is what I think about this product.

First, financial models of any sort are not the end goals per se, but just a set of tools among many that has to help the user to see a better/bigger picture in business/company valuation/projection. It is a well-known fact that models are good as much as their inputs are. So, if one puts garbage in the garbage will be out as a result. In any case, any model is a subjective in its nature and solely depend on the builders opinion. It can't be applicable for everyone.

Second, in regards to long hours that junior emploees spend at firms, then that is a tool in of itself. Employees who have gone through such a "commando" type program, are made stronger both mentally and intellectually. So, in my view the initial premise that Thinknum should help to change the culture is plausible. This brings to my third point.

Third, building actual financial models from the scratch is an excellent tool in of itself to learn the basics, and it is absolutely better than learning by skimming the work of other people. Even if we consider that Thinknum is a useful tool, it shouldn't be used as a substitute for a real work. Building models is useful, and anyone who aspires to work on WS should learn these basics by actually doing themselves.

And the last point, that I hope will make my case against using the Thinknum stronger is that in the long term, the widespread use of Thinknum might lead to even more cuts in headcount at IBs. This factor will bring us to the point, where we have too much reliance on technology and artificial intellligence, which might have its merits, but should be treated with care.

If you have your opinions in regards to this article, please do share in the comments section, just below this post.

Panera Bread - The Darkest Hour Is Just Before The Dawn

Panera Bread is the company that I have been following since the fall of 2008. Since the first time I had a breakfast at Panera, I fell in love with it as a customer. The reason is simple. At my first ever visit to Panera, the lady behind the counter had correctly guessed that it was my first ever visit to Panera, and suggested to celebrate this special occasion with a free cup of coffee! It was something that I didn’t expect at all. This level of attention to getting just one customer’s business is irreplaceable. I felt a sense of sympathy to this particular cafe which would later make me come back many more times. 
Panera Bread is not in a restaurant business per se, it is in the making “people-feel-good-with-their-choice” business.

Monday, June 30, 2014

Thrilled to join the Seeking Alpha Community

I am thrilled to share with my blog readers that I have joined the Seeking Alpha community by submitting my first ever company analysis for Pro service. From now on, I will work even harder to be able to produce quality materials for SA community. Hope that my articles and analytical papers will be of value to a wider audience.

However, it doesn't mean that I will stop writing regularly on this platform. On the contrary, I am willing to increase, the number posts that I usually produce, with an increased emphasis not only on the narrow science of "stock-picking" to a wider topic of saving, building a nest egg, education and family budgeting.

To whom, who might be interested in reading my materials on SA, please click the following link, which will lead you directly to my profile page, where you can find my articles.

Monday, May 12, 2014

Constellation Brands (STZ) - what's the likely scenario for the near future (1-5 years)? - Part 1

The Company is a Delaware corporation incorporated in 1972, as a successor of a business founded in 1945. The Company employs approximately 4,500 employees located primarily in the US and Canada.

The Company is the world's leading premium wine company with leading market position in the US, Canada and New Zealand.

The Company is the leading marketer of imported beer in the US through its investment in Crown Imports LLC, a JV (50%/50%) with Grupo Modelo, S.A.B de C.V. (Modelo) pursuant to which Modelo's Mexican beer portfolio (Modelo Brands) are imported, marketed and sold by the JV in the US on an exclusive basis.

The Company has signed a definitive agreements to acquire the remaining  (1) 50% equity interest in Crown Imports for $1.85bln, and (2) Piedras Negras brewery located in Nava, Mexico, perpetual brand rights for Modelo brands currently sold in the US, and other certain other extensions for $2.9bln. The combined $4.75bln beer business transaction is expected to completed by the end of Q1 2014. As a result, the Company will become a third largest producer and marketer of beer for the US market and the largest multi-category supplier (wine, spirits and beer) of beverage alcohol in the US.

During the last 10 years, there have been certain key trends within the beverage alcohol industry, which include:

  • Consolidation of suppliers, wholesalers and retailers
  • An increase in global wine consumption, with premium wines growing faster than value-priced wines
  • Premium spirits growing faster than value-priced spirits
  • High-end beer (imports and crafts) growing faster than domestic beer in the US
To capitalize on these trends and become more competitive, the Company has generally employed a strategy focused on a combination of organic growth, acquisitions and investments in joint ventures and other entities, with an increasing focus on the higher-margin premium categories of the beverage alcohol industry. Key elements of the Company's strategy include:

  • Leveraging its existing portfolio of elading brands
  • Developing new products, new packaging and line extensions
  • Strengthening relationships with wholesalers and retailers
  • Expanding distribution of its product portfolio
  • Enhancing prodcution capabilities
  • Realizing operating efficiencies and synergies
  • Maximizing asset utilization
From 2007 -2011, the Company had complemented above mentioned strategy by divesting certain busininesses, brands, and assets as part of its efforts to increase its mix of premium brands, improve margins, create operating efficiencies and reduce debt. Since completeing that period the Company has acquired the remaining interest in Ruffino in 2012 and Mark West in 2013. Both of these brands are higher margin premiuim wine brands.

The pending beer business transaction will help the Company solidify it's position in the US beer market over the long-term. The transaction is also expected to deiversify the Company's profit base and enhance margins, earnings and cash flow.

Visa (V) - is a steal after a recent price drop?

v  After Visa announced the Q114 results, shares fell to $200. In my opinion it is a reflection of misunderstanding of the results, which also ignores the quality of company’s balance sheet as well as the the growth prospects.
v  Visa has grown net operating revenues in Q1 by 11% YoY, thanks due to robust growth of service revenues, data processing revenues and international transaction revenues.
v  During the quarter the company has repurchased 5.5mln shares at an average price $199.56 using $1.1bln of cash at hand.
v  The company has not debt, no pension obligations or even no preferred stock.
v  Free cash flow for the company at the end of Q1 was $1.6bln, while capital expenditures were $250mln in total(!).
v  In 2008, there were 1.4bln shares outstanding, while at the end of Q1, shares outstanding fell to 656mln shares. Visa is repurchasing about $1.1 billion worth of its stock per quarter, which works out to $4.4 billion annualized.
v  All in all, we can safely state that Visa is growing both organically and repurchasing more and more shares which should have a sizeable effect on per share earnings in the future.
v  An investor with a long term horizon, should definitely have a look at the company this pristine.

Sunday, April 20, 2014

Constant progress

Reading is the most important part of becoming a better investor over time. It might even sound as a cliche expression, but let's look into the matter closely and try to understand what makes reading an important element in becoming a batter investor.

Types of reading.

In my view there are several types of reading. The important distinction is that there are a passive rerading and active reading. Passive form is more applicable when one reads for leisurly reasons, just to entertain or relax. Comic books, or materials that adds nothing material but just entertain a person. This type of reading is the easiest one, and the one that becomes a bad habit we don't take active measures to place a limit between these two types of reading.

The second type is active reading, which means reading to learn something and add tools that have practical use for us.Take for instance reading of company filings. Company filings in of itself are not the most entertaining materials to read to relax. They often contains a lot of factual and statistical data that has a limited use for an average person. But they are of utmost importance to an investor. Because the company filings are sort of report cards of companies. They give us a factual informayion about the status of progress at the company, or give us information to us to make a better judgement about the viability of company business plan foing forwards. These mataerials should be read with extra focus and attention, as they give us a picture to make a judgement.

Any time, we read an important document, be it an article that falls into our circle of interest, or company filing, that we care about, we have to make a habit of taking notes to to be able to think deeper about the issues. This way, we make ourselves more focused and might understand things a little better.

Wednesday, April 16, 2014

Entrepreneurship or investing? What is the difference?

The topic of entrepreneurship is widely discussed matter. People have various ideas about the ways to make money. Most people also agree on the topic of having own business is the clearest and the only way for making a fortune.

But is it the only way?

In my view it is not the only way and one has to also consider counter arguments in considering the aforementioned question.

First, entrepreneurship is not for everyone. It is always easy to state that anyone can achieve what has Richard Bransons, Sam Waltons of the world has acheieved. But the untold truth is that, it is impossible. These people, have either had extraordinary amount of luck at some point in time, or had brains larger than most of the people.

Wednesday, April 2, 2014

Ways for achieving financial independence

People ask me why not save money and open a business? 'Hey, why not open a hot dog stand?". Well, although I enjoy eating hot dogs, I don't know if I'd like standing in one spot for 9 hours at a time serving them up. Although opening a hot dog stand is a very simplified version of the question, it is valid. Why not open a business instead of investing in dividend growth stocks? Why stocks in general? Let's examine that question.

1) Dividend investing is just a fancy name for becoming a part-owner of a dividend paying company. Why dividends? Dividends are simply put the litmus test for a company's health and well-being. And if one looks into historical records, he can see that over the last hundred years, dividends make up almost the 50% of total return in the stock market.

2) Investing in a public company, i.e. becoming a part owner, is a passive way for earning an income. Therefore, I have chosen this particular path very consciously. Dividends, that companies share with shareholders is a passive income, that I am after.

3) Evert person has unique personalities, and mine doesn't suit perfectly to becoming a business operator, but more attuned to beiung a business owner. So, again my goal is to generate as much capital as possible and become a proud owner of a number of great businesses, with valuable franchises.

4) Time is on my side. Time is in essence another litmus test, that over a long period shows if it has a sustainable business model and  attractive products. The companies, that I invest in are companies, that usuually has already proven to the world, that their mdoels work. So, the only conclusion that I like here, is that, I'd rather be a part owner of a great business, than try to compete with theses businesses. It is always better be a fan of a Barcelona, than Spartak Moscow.

These are just a number of reason, why I consider investing in securities of public companies is of utmost importance. This particular way works for me, but might not work for someone else.

Monday, March 31, 2014

What is the purpose of this blog?

First and foremost this blog will serve two purposes.

1) I will use this platform to share my thoughts and analysis on investment related topics with the wider audience, who will end up visiting my blog. In this case, I will seek both approval and constructive feedback on my work. Principally, I believe that any work that is worth doing, should be also measurable and be open for improvement. Therefore, I am willing to use the blog for improving myself in terms of learning about the business processes and investing.

2) I will use this blog, to show people about the activities that I am involved in, and will try to be as transparent as it is possible. I want to show people, that there are alternative ways for growing wealth, which is by the means of investing in businesses through common stocks. Here, I have to make a confession, that the role model in my life people like Charlie Munger and Warren Buffett, so it should not be a surprise to anyone who is reading my blog that majority of the material will be dedicated to investing related topics. So, I am being clear about the message that I will try to bring across through my blog.

3) I hope that by using this blog, I will also improve my craft of writing, as I believe that being able to write succinctly and clear are very important attributes for anyone who wants to succeed in life. So, this blog should serve as an extra motivating factor in becoming a better writer.

Why Companues Go Public: Rationality Comes First

This is a post that was written as a response to the post on FB. Here is the link: